CBI warns of end to cheap energy

The price of unleaded petrol hit £1 a litre last night, prompting warnings that with oil prices fast approaching the milestone of $100 a barrel, businesses will have to adapt to a period of high energy prices.

The CBI's head of business environment, Michael Farrow, warned that there was no immediate end in sight to a period of historically high energy prices. "This is another reminder that the era of cheap energy has come to an end,” he said. "Businesses will have to work hard to ensure they are as efficient as possible, and it seems likely they will have to live with the higher oil price for some time to come."

Speaking on Newsnight last night, Jonathan Porritt, head of the Sustainable Development Commission, said that the high oil price could ultimately prove to be a " good thing", despite the short-term economic pain it will cause, because it should help make investments in energy efficiency measures and renewable technologies more financially attractive.

"Rising oil prices mean consumers will look to alternative methods of energy production, and renewables will fill this gap," agreed Philip Wolfe, chief executive at the Renewable Energy Association. "However, the REA believe a realignment of regulatory and policy measures are required to better deliver in this sector."

Meanwhile, advocates of peak oil theory, such as Solar Century's Jeremy Leggett, warned that the high oil prices are set to rapidly worsen as oil supplies begin to dwindle.

The warnings came as a new report from the International Energy Agency (IEA) yesterday predicted world energy use could rise 50 per cent by 2030 and called for international co-operation and investment to stop the costly trend.

The report argued that if governments stick with current energy policies, energy use will soar, driven by increased demand from China and India. Consequently, energy-related carbon emissions would rise from 27 gigatonnes (Gt) in 2005 to 42 Gt in 2030 – a rise of 57 per cent.

The IEA warned that this potentially disastrous scenario could only be avoided with a major overhaul of global energy policy. It outlined a "450 Stabilisation Case", which proposes a pathway to "long-term stabilisation of the concentration of greenhouse gases in the atmosphere, [where] global emissions peak in 2012 and then fall sharply below 2005 levels by 2030".

The proposals include a major focus on improved energy in industry, buildings and transport, a switch to nuclear power and renewables, and the widespread deployment of CO2 capture and storage (CCS).

"The emergence of new major players in global energy markets means that all countries must take vigorous, immediate and collective action to curb runaway energy demand," said IEA executive director Nobuo Tanaka. "We need to act now to bring about a radical shift in investment in favour of cleaner, more efficient and more secure energy technologies."